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 October 29, 2014 - 7:15 AM EDT
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RPC, Inc. Reports Third Quarter 2014 Financial Results

ATLANTA, Oct. 29, 2014 /PRNewswire/ -- RPC, Inc. (NYSE: RES) today announced its unaudited results for the third quarter ended September 30, 2014.  RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oilfield companies engaged in the exploration, production and development of oil and gas properties throughout the United States and in selected international markets. 

For the quarter ended September 30, 2014, revenues increased 26.4 percent to a record $620.7 million compared to $491.1 million in the third quarter of last year.  Revenues increased compared to the prior year primarily due to higher activity levels and service intensity in our major service lines and a slightly larger fleet of revenue-producing equipment.  Operating profit for the quarter was $106.7 million compared to operating profit of $85.8 million in the prior year.  Net income for the quarter was $64.9 million or $0.30 diluted earnings per share, compared to $53.8 million or $0.25 diluted earnings per share last year.  Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 16.5 percent to $163.4 million compared to $140.3 million in the prior year. [1] 

Cost of revenues during the third quarter of 2014 was $398.3 million, or 64.2 percent of revenues, compared to $303.7 million, or 61.8 percent of revenues during the third quarter of last year.  Cost of revenues increased due to higher materials and supplies expenses, employment costs, maintenance and repair expenses and fuel expenses resulting from higher activity levels.  As a percentage of revenues, cost of revenues also increased because of more service intensive work and the associated higher raw materials costs, fuel expenses and logistical expenses compared to the prior year, partially offset by the impact of improved personnel utilization. 

Selling, general and administrative expenses were $50.8 million in the third quarter of 2014 compared to $47.1 million in the third quarter of 2013.  As a percentage of revenues, these costs decreased to 8.2 percent in the third quarter of 2014 compared to 9.6 percent in the third quarter of 2013 primarily due to leverage of higher revenue over fixed employment costs.  Depreciation and amortization increased to $57.2 million during the quarter compared to $53.2 million in the third quarter of the prior year.  Interest expense during the third quarter of 2014 was $456.0 thousand, an increase compared to $283.0 thousand during the third quarter of the prior year.  Interest expense increased during the third quarter as compared to the prior year due to a higher average balance on our syndicated credit facility, partially offset by lower effective interest rates.

For the nine months ended September 30, 2014, revenues increased 24.1 percent to $1.7 billion compared to $1.4 billion last year.  Net income for the nine month period was $167.6 million, or $0.77 diluted earnings per share, compared to $129.3 million, or $0.60 diluted earnings per share last year.

Discussion of Sequential Quarterly Financial Results

RPC's revenues for the quarter ended September 30, 2014 increased by $37.9 million or 6.5 percent compared to the second quarter of 2014.  Revenue increased due to higher activity levels in most of our major service lines. Cost of revenues during the third quarter increased by $24.0 million or 6.4 percent due to higher activity levels and increased logistical costs related to certain raw materials used in providing our services.  Cost of revenues as a percentage of revenues were 64.2 percent in the second and third quarters. Selling, general and administrative expenses during the third quarter of 2014 increased by $3.2 million, or 6.7 percent, compared to the second quarter and represented 8.2 percent of revenues in the second quarter and the third quarter.  RPC incurred a net loss on disposition of assets of $7.7 million in the third quarter of 2014, a significant increase compared to $1.4 million in the second quarter.  This increased loss was caused primarily by damage to critical components due to a more service-intensive job mix in RPC's pressure pumping service line.  Operating profit increased by 3.5 percent to $106.7 million, compared to $103.0 million in the second quarter.  Operating profit as a percentage of revenues declined from 17.7 percent in the second quarter of 2014 to 17.2 percent in the third quarter. 

Management Commentary

"RPC's overall activity levels and service intensity continued to increase during the third quarter of 2014 and were responsible for the majority of our year-over-year and sequential revenue growth," stated Richard A. Hubbell, RPC's President and Chief Executive Officer. "Our customers increasingly depend on us to assist them in optimizing production in unconventional resources by providing high-quality, effective completion services, which is one reason that RPC's revenues continue to grow at rates that exceed industry indicators.  The average U.S. domestic rig count during the third quarter was 1,903, a 7.5 percent increase compared to the same period in 2013, and a 2.8 percent increase compared to the second quarter of 2014.  The average price of natural gas was $3.91 per Mcf, a 10.5 percent increase compared to the prior year, but a 14.1 percent decrease compared to the second quarter of 2014.  The average price of oil during the quarter was $97.74 per barrel, an 8.1 percent decrease compared to the prior year and a 5.3 percent decrease compared to the second quarter of 2014.  The unconventional rig count, an important indicator of the demand for RPC's services, increased by 14.8 percent compared to the prior year.  During the third quarter of 2014 unconventional drilling represented 80.4 percent of U.S. domestic drilling activity.  

"During the quarter we incurred above-normal losses on pressure pumping equipment components that were damaged by high volumes of particularly abrasive proppant used in long-duration jobs.  These losses were significant and contributed to sequential margin declines.  We are addressing this issue in several ways to reduce this impact on future results.  Also, extremely high raw materials volume requirements contributed to logistical difficulties late in the quarter.  As a result, we incurred higher than normal transportation expenses in order to meet our customers' scheduling requests.  As always, we continue to work on improvements to our logistical processes.

"We are monitoring the steep decline in the price of oil in the world markets that has taken place over the past few months, and are watching for any signs of reduced customer activity levels or reductions in 2015 budgets.  At this time, we are unaware of any decrease in our customers' activities or plans.  We are beginning to take delivery of the pressure pumping equipment ordered under our expansion plan announced earlier this year, and remain confident that it will be generating revenues during the first quarter of 2015.  Our capital expenditures were $124.7 million in the third quarter, an increase of $73.3 million compared to the third quarter of last year, most of which was in support of our growth plan.  However, we also believe that the near-term uncertainty caused by the recent steep decline in oil prices makes a conservative balance sheet more important than ever.  Our debt to total capitalization ratio at the end of the quarter was 12.5 percent, which is conservative by industry standards and lower than our average debt ratio during recent years.  We will remain conservatively capitalized and scrutinize new capital expenditure opportunities or other investments while being mindful of the situation in the world oil markets," concluded Hubbell. 

Summary of Segment Operating Performance

RPC's business segments are Technical Services and Support Services.

Technical Services includes RPC's oilfield service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer's well.  These services are generally directed toward improving the flow of oil and natural gas from producing formations or to address well control issues.  The Technical Services segment includes pressure pumping, coiled tubing, hydraulic workover services, nitrogen, downhole tools, surface pressure control equipment, well control, and fishing tool operations.

Support Services includes RPC's oilfield service lines that provide equipment for customer use or services to assist customer operations.  The equipment and services offered include rental of drill pipe and related tools, pipe handling, inspection and storage services and oilfield training services.

Technical Services revenues increased 25.9 percent for the quarter compared to the prior year due to higher activity levels and greater service intensity in the service lines within this segment.  Support Services revenues increased by 32.8 percent during the quarter compared to the prior year due principally to higher activity levels and an improved job mix in the rental tool service line, which is the largest service line within this segment, as well as higher activity levels in the other service lines which comprise this segment.  Operating profit in both Technical and Support Services improved due to higher revenues and greater utilization of personnel and equipment.

(in thousands)


Three Months Ended September 30



Nine Months Ended
September 30



2014


2013



2014


2013











Revenues:










   Technical services

$

576,908

$

458,168


$

1,588,270

$

1,276,209

   Support services


43,776


32,953



116,937


98,299

Total revenues

$

620,684

$

491,121


$

1,705,207

$

1,374,508

Operating Profit:










   Technical services

$

102,849

$

86,183


$

267,462

$

210,807

   Support services


14,735


6,022



31,190


19,361

   Corporate expenses


(3,239)


(5,098)



(12,407)


(13,592)

   Loss on disposition of assets, net


(7,684)


(1,268)



(11,321)


(5,665)

Total operating profit

$

106,661

$

85,839


$

274,924

$

210,911

Interest Expense


(456)


(283)



(842)


(1,565)

Interest Income


4


8



14


73

Other (Expense) Income, net


(454)


1,279



457


1,643











Income before income taxes

$

105,755

$

86,843


$

274,553

$

211,062











RPC, Inc. will hold a conference call today, October 29, 2014 at 9:00 a.m. ET to discuss the results of the third quarter.  Interested parties may listen in by accessing a live webcast in the investor relations section of RPC, Inc.'s website at www.rpc.net.  The live conference call can also be accessed by calling (888) 539-3612 or (719) 325-2472 and using the access code #7358223.  For those not able to attend the live conference call, a replay of the conference call will be available in the investor relations section of RPC, Inc.'s website (www.rpc.net) beginning approximately two hours after the call. 

RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oilfield companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest, Appalachian and Rocky Mountain regions, and in selected international markets.  RPC's investor website can be found at www.rpc.net.

Certain statements and information included in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including all statements that look forward in time or express management's beliefs, expectations or hopes.  In particular, such statements include, without limitation, our belief that we are taking actions to address our above-normal losses on pressure pumping equipment damaged by the use of abrasive proppant and that we will address these issues in future periods; that we will be able to utilize pressure pumping equipment we are acquiring as a result of our expansion plan will generate revenues during the first quarter of 2015; our belief that a conservative balance sheet is important due to near-term uncertainty caused by the recent steep decline in oil prices; and our plan to remain conservatively capitalized and scrutinize new capital expenditure opportunities or other investments.  These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of RPC to be materially different from any future results, performance or achievements expressed or implied in such forward-looking statements. Such risks include changes in general global business and economic conditions; drilling activity and rig count; risks of reduced availability or increased costs of both labor and raw materials used in providing our services; the impact on our operations if we are unable to comply with regulatory and environmental laws; turmoil in the financial markets and the potential difficulty to fund our capital needs; the potentially high cost of capital required to fund our capital needs; the impact of the level of unconventional exploration and production activities may cease or change in nature so as to reduce demand for our services; the actions of the OPEC cartel, the ultimate impact of current and potential political unrest and armed conflict in the oil-producing regions of the world, which could impact drilling activity; adverse weather conditions in oil or gas producing regions, including the Gulf of Mexico; competition in the oil and gas industry; an inability to implement price increases; risks of international operations; and our reliance upon large customers.  Additional discussion of factors that could cause the actual results to differ materially from management's projections, forecasts, estimates and expectations is contained in RPC's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2013.

For information about RPC, Inc., please contact:

Ben M. Palmer
Chief Financial Officer
(404) 321-2140
irdept@rpc.net

Jim Landers
Vice President, Corporate Finance
(404) 321-2162
jlanders@rpc.net

[1] EBITDA is a financial measure which does not conform to generally accepted accounting principles (GAAP). Additional disclosure regarding this non-GAAP financial measure is disclosed in Appendix A to this press release.

RPC INCORPORATED AND SUBSIDIARIES




























CONSOLIDATED STATEMENTS OF OPERATIONS  (In thousands except per share data)






Periods ended, (Unaudited)



    Three Months Ended


Nine Months Ended




September 30, 2014



June 30, 2014



September 30, 2013



2014



2013

REVENUES


$

620,684


$

582,831


$

491,121


$

1,705,207


$

1,374,508

COSTS AND EXPENSES:
















Cost of revenues



398,306



374,275



303,707



1,102,596



859,512

Selling, general and administrative expenses


50,814



47,603



47,096



147,125



139,621

Depreciation and amortization



57,219



56,517



53,211



169,241



158,799

Loss on disposition of assets, net



7,684



1,405



1,268



11,321



5,665

Operating profit 



106,661



103,031



85,839



274,924



210,911

Interest expense



(456)



(49)



(283)



(842)



(1,565)

Interest income



4



6



8



14



73

Other (expense) income, net



(454)



831



1,279



457



1,643

Income before income taxes



105,755



103,819



86,843



274,553



211,062

Income tax provision 



40,870



40,536



33,083



106,997



81,810

NET INCOME 


$

64,885


$

63,283


$

53,760


$

167,556


$

129,252

































EARNINGS PER SHARE 
















   Basic


$

0.30


$

0.29


$

0.25


$

0.78


$

0.60

   Diluted


$

0.30


$

0.29


$

0.25


$

0.77


$

0.60

















AVERAGE SHARES OUTSTANDING
















     Basic 



215,202



215,224



215,068



215,200



215,715

     Diluted 



216,334



216,238



216,142



216,316



216,862

 

RPC INCORPORATED AND SUBSIDIARIES












CONSOLIDATED BALANCE  SHEETS






At September 30, (Unaudited)


(In thousands)



2014



2013

ASSETS






Cash and cash equivalents

$

8,522


$

22,937

Accounts receivable, net


591,585



390,008

Inventories


153,948



128,203

Deferred income taxes


10,851



7,171

Income taxes receivable


11,081



15,088

Prepaid expenses 


5,507



5,116

Other current assets


3,562



3,406

  Total current assets


785,056



571,929

Property, plant and equipment, net


775,714



736,829

Goodwill 


32,150



24,093

Other assets


23,113



19,478

  Total assets

$

1,616,033


$

1,352,329







LIABILITIES AND STOCKHOLDERS' EQUITY






Accounts payable

$

182,123


$

116,318

Accrued payroll and related expenses


41,446



33,326

Accrued insurance expenses


5,526



5,880

Accrued state, local and other taxes


10,609



8,862

Income taxes payable


558



168

Other accrued expenses


1,214



1,184

  Total current liabilities


241,476



165,738

Long-term accrued insurance expenses


10,082



10,989

Notes payable to banks


152,000



51,400

Long-term pension liabilities


22,786



28,076

Other long-term liabilities


14,285



3,140

Deferred income taxes


114,459



146,035

  Total liabilities


555,088



405,378

Common stock 


21,860



21,904

Capital in excess of par value


-



-

Retained earnings


1,049,636



939,336

Accumulated other comprehensive loss


(10,551)



(14,289)

  Total stockholders' equity


1,060,945



946,951

  Total liabilities and stockholders' equity 

$

1,616,033


$

1,352,329

 

Appendix A

RPC has used the non-GAAP financial measure of earnings before interest, taxes, depreciation and amortization (EBITDA) in today's earnings release, and anticipates using EBITDA in today's earnings conference call.  EBITDA should not be considered in isolation or as a substitute for operating income, net income or other performance measures prepared in accordance with U.S. GAAP.  RPC uses EBITDA as a measure of operating performance because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We are also required to use EBITDA to report compliance with financial covenants under our revolving credit facility. A non-GAAP financial measure is a numerical measure of financial performance, financial position, or cash flows that either 1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows, or 2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Set forth below is a reconciliation of EBITDA with Net Income, the most comparable GAAP measure.  This reconciliation also appears on RPC's investor website, which can be found on the Internet at www.rpc.net.

 

















Periods ended, (Unaudited)



Three Months Ended


 Nine Months Ended

(in thousands except per share data)



September 30, 2014



June 30, 2014



September 30, 2013



2014



2013

















Reconciliation of Net Income to EBITDA
















Net Income 


$

64,885


$

63,283


$

53,760


$

167,556


$

129,252

Add:
















     Income tax provision 



40,870



40,536



33,083



106,997



81,810

     Interest expense



456



49



283



842



1,565

     Depreciation and amortization



57,219



56,517



53,211



169,241



158,799

Less:
















     Interest income



4



6



8



14



73

EBITDA


$

163,426


$

160,379


$

140,329


$

444,622


$

371,353

















EBITDA PER SHARE
















     Basic 


$

0.76


$

0.75


$

0.65


$

2.07


$

1.72

     Diluted 


$

0.76


$

0.74


$

0.65


$

2.06


$

1.71

















 

SOURCE RPC, Inc.


Source: PR Newswire (October 29, 2014 - 7:15 AM EDT)

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